Approximately $97.9 Million of Structured Securities Affected
New York, February 16, 2011 -- Moody's Investors Service (Moody's) upgraded the rating of one class,
downgraded two classes and affirmed eight classes of Salomon Brothers
Mortgage Securities VII, Inc., Commercial Mortgage
Pass-Through Certificates, Series 2002-KEY2 as follows:
Cl. E, Upgraded to Aaa (sf) and Remains On Review for Possible
Downgrade; previously on Jan 19, 2011 Aa1 (sf) Placed Under
Review for Possible Downgrade
Cl. F, Affirmed at Aa2 (sf); previously on Apr 30,
2009 Upgraded to Aa2 (sf)
Cl. H, Affirmed at A1 (sf); previously on Apr 30,
2009 Upgraded to A1 (sf)
Cl. J, Affirmed at A3 (sf); previously on Apr 30,
2009 Upgraded to A3 (sf)
Cl. K, Affirmed at Baa2 (sf); previously on Apr 30,
2009 Upgraded to Baa2 (sf)
Cl. L, Affirmed at Ba1 (sf); previously on Sep 26,
2002 Definitive Rating Assigned Ba1 (sf)
Cl. M, Affirmed at Ba2 (sf); previously on Sep 26,
2002 Assigned Ba2 (sf)
Cl. N, Affirmed at Ba3 (sf); previously on Sep 26,
2002 Definitive Rating Assigned Ba3 (sf)
Cl. P, Affirmed at B1 (sf); previously on Sep 26,
2002 Definitive Rating Assigned B1 (sf)
Cl. Q, Downgraded to Caa1 (sf); previously on Sep 26,
2002 Definitive Rating Assigned B2 (sf)
Cl. S, Downgraded to Caa3 (sf); previously on Sep 26,
2002 Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
Moody's rating action did not address the ratings of Classes A-2,
A-3, B, C, D and X-1, which are
all currently rated Aaa, on review for possible downgrade.
These classes were placed on review on January 19, 2011.
KeyCorp Real Estate Capital Markets, Inc. (KRECM) is the
master servicer on this transaction and deposits collection, escrow
and other accounts in KeyBank, National Association (KeyBank) KeyBank
no longer meets Moody's rating criteria for an eligible depository
account institution for Aaa and Aa1 rated securities. Moody's
is reviewing arrangements that KeyBank has proposed, and that it
may propose, to mitigate the incremental risk indicated by the lower
rating of the depository account institution, so as possibly to
allow the classes on review to maintain their current ratings.
The upgrade of Class E is due to the significant increase in subordination
due to loan payoffs and amortization. The pool has paid down by
approximately 6% since Moody's last review and 40% since
securitization. Class E remains on review for possible downgrade
pending the resolution of the KeyBank issue.
The downgrades are due to higher expected losses for the pool resulting
from anticipated losses from specially serviced loans.
The affirmations are due to key parameters, including Moody's
loan to value (LTV) ratio, Moody's stressed debt service coverage
ratio (DSCR) and the Herfindahl Index (Herf), remaining within acceptable
ranges. Based on our current base expected loss, the credit
enhancement levels for the affirmed classes are sufficient to maintain
their current ratings.
Moody's rating action reflects a cumulative base expected loss of
3.1% of the current balance. At last review,
Moody's cumulative base expected loss was 1.1%.
Moody's stressed scenario loss is 6.0% of the current
balance. Moody's provides a current list of base and stress
scenario losses for conduit and fusion CMBS transactions on moodys.com
at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
Depending on the timing of loan payoffs and the severity and timing of
losses from specially serviced loans, the credit enhancement level
for investment grade classes could decline below the current levels.
If future performance materially declines, the expected level of
credit enhancement and the priority in the cash flow waterfall may be
insufficient for the current ratings of these classes.
Moody's analysis reflects a forward-looking view of the likely
range of collateral performance over the medium term. From time
to time, Moody's may, if warranted, change these
expectations. Performance that falls outside an acceptable range
of the key parameters may indicate that the collateral's credit
quality is stronger or weaker than Moody's had anticipated during
the current review. Even so, deviation from the expected
range will not necessarily result in a rating action. There may
be mitigating or offsetting factors to an improvement or decline in collateral
performance, such as increased subordination levels due to amortization
and loan payoffs or a decline in subordination due to realized losses.
Primary sources of assumption uncertainty are the current stressed macroeconomic
environment and continuing weakness in the commercial real estate and
lending markets. Moody's currently views the commercial real
estate market as stressed with further performance declines expected in
the industrial, office, and retail sectors. Hotel performance
has begun to rebound, albeit off a very weak base. Multifamily
has also begun to rebound reflecting an improved supply / demand relationship.
The availability of debt capital is improving with terms returning towards
market norms. Job growth and housing price stability will be necessary
precursors to commercial real estate recovery. Overall, Moody's
central global scenario remains "hook-shaped" for 2011;
we expect overall a sluggish recovery in most of the world's largest
economies, returning to trend growth rate with elevated fiscal deficits
and persistent unemployment levels.
The principal methodologies used in this rating were "CMBS:
Moody's Approach to Rating Fusion Transactions" published in April
2005 and "CMBS: Moody's Approach to Rating Large Loan/Single
Borrower Transactions" published in July 2000. In addition,
Moody's publishes a weekly summary of structured finance credit,
ratings and methodologies, available to all registered users of
our website, at www.moodys.com/SFQuickCheck.
Moody's review incorporated the use of the excel-based CMBS
Conduit Model v 2.50 which is used for both conduit and fusion
transactions. Conduit model results at the Aa2 level are driven
by property type, Moody's actual and stressed DSCR,
and Moody's property quality grade (which reflects the capitalization
rate used by Moody's to estimate Moody's value). Conduit
model results at the B2 level are driven by a paydown analysis based on
the individual loan level Moody's LTV ratio. Moody's
Herfindahl score (Herf), a measure of loan level diversity,
is a primary determinant of pool level diversity and has a greater impact
on senior certificates. Other concentrations and correlations may
be considered in our analysis. Based on the model pooled credit
enhancement levels at Aa2 and B2, the remaining conduit classes
are either interpolated between these two data points or determined based
on a multiple or ratio of either of these two data points. For
fusion deals, the credit enhancement for loans with investment-grade
credit estimates is melded with the conduit model credit enhancement into
an overall model result. Fusion loan credit enhancement is based
on the underlying rating of the loan which corresponds to a range of credit
enhancement levels. Actual fusion credit enhancement levels are
selected based on loan level diversity, pool leverage and other
concentrations and correlations within the pool. Negative pooling,
or adding credit enhancement at the underlying rating level, is
incorporated for loans with similar credit estimates in the same transaction.
Moody's uses a variation of Herf to measure diversity of loan size,
where a higher number represents greater diversity. Loan concentration
has an important bearing on potential rating volatility, including
risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 18
compared to 21 at Moody's prior full review.
In cases where the Herf falls below 20, Moody's also employs
the large loan/single borrower methodology. This methodology uses
the excel-based Large Loan Model v 8.0 and then reconciles
and weights the results from the two models in formulating a rating recommendation.
The large loan model derives credit enhancement levels based on an aggregation
of adjusted loan level proceeds derived from Moody's loan level
LTV ratios. Major adjustments to determining proceeds include leverage,
loan structure, property type, and sponsorship. These
aggregated proceeds are then further adjusted for any pooling benefits
associated with loan level diversity, other concentrations and correlations.
Moody's ratings are determined by a committee process that considers
both quantitative and qualitative factors. Therefore, the
rating outcome may differ from the model output.
The rating action is a result of Moody's on-going surveillance
of commercial mortgage backed securities (CMBS) transactions. Moody's
monitors transactions on a monthly basis through two sets of quantitative
tools -- MOST® (Moody's Surveillance Trends) and CMM
(Commercial Mortgage Metrics) on Trepp -- and on a periodic
basis through a comprehensive review. Moody's prior full review
is summarized in a press release dated April 30, 2009. Please
see the ratings tab on the issuer / entity page on moodys.com for
the last rating action and the ratings history.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
DEAL PERFORMANCE
As of the January 18, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 40% to $561.6
million from $932.8 billion at securitization. The
Certificates are collateralized by 51 mortgage loans ranging in size from
less than 1% to 12% of the pool, with the top ten
loans representing 52% of the pool. The pool contains two
loans with investment grade credit estimates that represent 19%
of the pool. At last review, two additional loans also had
credit estimates. However, these loans are now in the conduit
pool due to increased leverage. Eleven loans, representing
19% of the pool, have defeased and are collateralized with
U.S. Government securities.
Five loans, representing 4% of the pool, are on the
master servicer's watchlist. The watchlist includes loans
which meet certain portfolio review guidelines established as part of
the CRE Finance Council (CREFC) monthly reporting package. As part
of our ongoing monitoring of a transaction, Moody's reviews the
watchlist to assess which loans have material issues that could impact
performance.
Two loans have been liquidated from the pool since securitization,
resulting in an aggregate $2.76 million loss (21%
loss severity on average). Currently, there are three loans,
representing 4% of the pool in special servicing. The master
servicer has recognized an aggregate $11.3 million for the
loans in special servicing. Moody's has estimated an aggregate
$11.8 million loss (48% expected loss on average)
for the specially serviced loans.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 100% and 96%, respectively, of the
non-defeased pool. Excluding specially serviced loans,
Moody's weighted average LTV is 83%, essentially the
same as at Moody's prior review. Moody's net cash flow
reflects a weighted average haircut of 17% to the most recently
available net operating income. Moody's value reflects a
weighted average capitalization rate of 9.5%.
Excluding specially serviced loans, Moody's actual and stressed
DSCRs are 1.29X and 1.34X, respectively, compared
to 1.36X and 1.35X at last review. Moody's
actual DSCR is based on Moody's net cash flow (NCF) and the loan's
actual debt service. Moody's stressed DSCR is based on Moody's
NCF and a 9.25% stressed rate applied to the loan balance.
The largest loan with a credit estimate is the Westfarms Mall Loan ($69.5
million -- 12.4% of the pool), which represents
a 50% participation interest in a $139.0 million
first mortgage loan. The loan is also encumbered with $45.7
million in subordinate debt. The loan is secured by the borrower's
interest in a 1.3 million square foot super-regional mall
located in Farmington, Connecticut. The property is anchored
by Filene's (two stores), J.C. Penney, Lord
& Taylor and Nordstrom. As of September 2010, in-line
space was 100% leased compared to 96% at last review.
For full year 2009, actual net operating income (NOI) was 15%
higher than in 2008. The loan is benefitting from an additional
3% in amortization since last review. The loan sponsor is
Taubman Centers Inc. Moody's current credit estimate and stressed
DSCR are Aa2 and 1.98X, respectively, compared to Aa3
and 1.64x at last review.
The second loan with a credit estimate is the Jefferson Mall Loan ($37.2
million -- 6.6% of the pool), which is secured
by the borrower's interest in a 875,000 square foot regional mall
located in Louisville, Kentucky. The property is anchored
by Sears, Macy's, J.C. Penney and Dillard's.
All the anchors own their own land and improvements. The collateral
for the loan consists of 270,000 square feet of in-line space.
As of September 2010, the in-line space was 90% leased;
the same as at last review. Performance is in-line with
last review. The loan is structured on a 25-year amortization
schedule and has amortized by approximately 5% since last review.
The loan sponsor is CBL & Associates Properties. Moody's current
credit estimate and stressed DSCR are Baa1 and 1.74X, respectively,
compared to Baa2 and 1.64x at last review.
The top three performing conduit loans represent 20% of the pool
balance. The largest conduit loan is the Westgate Mall Loan ($46.2
million -- 8.2% of the pool), which is secured
by the borrower's interest in a 1.1 million square foot regional
mall located in Spartanburg, South Carolina. The property
is anchored by Sears, Belk, Dillard's and J.C.
Penney. As of September 2010, the in-line stores were
90% leased compared to 94% at last review. The property's
performance has declined since last review due to a decline in rental
income and increased operating expenses. Actual 2009 NOI was 9%
lower than in 2008. The loan is structured on a 25-year
amortization schedule and has amortized by approximately 5% since
last review. The loan sponsor is CBL & Associates Properties.
Moody's current LTV and stressed DSCR are 95% and 1.11X,
respectively, compared to 82% and 1.31X.
The second largest conduit loan is the Northland Multifamily Portfolio
Loan ($36.3 million -- 6.5% of the pool),
which is secured by five Class B garden style apartment complexes totaling
1,056 units. The properties are located in Florida (3) and
Texas (2). As of September 2010, the portfolio was 94%
leased compared to 90% at last review. Performance remains
stable. The loan has amortized an additional 3% since last
review. Moody's LTV and stressed DSCR are 82% and 1.23X,respectively,
compared to 85% and 1.22X at last review.
The third largest conduit loan is the Regency Mall Loan ($29.2
million -- 5.2% of the pool), which is secured
by the borrower's interest in a 924,000 square foot regional mall
located in Racine, Wisconsin. The property is anchored by
J.C. Penney, Boston Store, Burlington Coat Factory,
Sears and Target. All the anchors own their respective land and
improvements. The collateral for the loan consists of 269,000
square feet of in-line space. As of September 2010,
the in-line space was 77% leased compared to 90%
at last review. Performance has been declining since 2007 due to
a decrease in rental income and increased expenses. Annualized
2010 NOI was 22% lower than in 2007. The loan is structured
with a 25-year amortization schedule and has amortized by 5%
since last review. The loan sponsor is CBL & Associates Properties.
Moody's current LTV and stressed DSCR are 112% and 0.95X,
respectively, compared to 87% and 1.25X at last review.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purpose of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Juan Acosta
Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Sandra Ruffin
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Upgrades One Class and Keeps it on Review for Possible Downgrade, Downgrades Two Classes and Affirms Eight CMBS Classes of SBM7 2002-Key2
